Consolidated Final Results
Konami Corporation
22 May 2003
Consolidated Financial Results
for the Year Ended March 31, 2003
(Prepared in Accordance with U.S. GAAP)
May 22, 2003
KONAMI CORPORATION
Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan
Stock code number, TSE: 9766
Ticker symbol, NYSE: KNM
URL: http://www.konami.com
Shares listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange
and Singapore Exchange
Representative: Kagemasa Kozuki, Chairman of the Board and Chief Executive Officer
Contact: Noriaki Yamaguchi, Executive Vice President and Chief Financial Officer
(Phone: +81-3-5220-0163)
Date of Board Meeting to approve May 22, 2003
the financial results:
Adoption of U.S. GAAP: Yes
1. Consolidated Results for the Year Ended March 31, 2003
(Amounts are rounded to the nearest million)
(1) Consolidated Results of Operations
(Millions of yen, except per share data)
Net revenues Operating Income (loss) Net income (loss)
before income
income (loss) taxes
Year ended March 31, 2003 253,657 (21,870) (22,096) (28,519)
% change from previous year 12.4 % - - -
Year ended March 31, 2002 225,580 18,087 22,678 11,402
% change from previous year 31.5 % (52.3)% (44.5)% (47.1)%
Basic and diluted Return on Ratio of income Ratio of income
net income (loss) shareholders' (loss) before (loss) before
per share equity income taxes to income taxes to
total assets net revenues
Year ended March 31, 2003 (234.58) (25.3)% (7.3)% (8.7)%
Year ended March 31, 2002 89.32 8.1 % 7.3 % 10.1 %
Notes:
1. Equity in net income (loss) of affiliated companies
Year ended March 31, 2003: Y(1,288) million
Year ended March 31, 2002: Y 755 million
2. Weighted-average common shares outstanding
Year ended March 31, 2003: 121,572,154 shares
Year ended March 31, 2002: 127,647,120 shares
3. Change in accounting policies: None
4. Net income (loss) per share was calculated in accordance with Statement of
Financial Accounting Standard (SFAS) No. 128 'Earnings per Share'.
5. Income (loss) before income taxes represents 'Income (loss) before income
taxes, minority interest and equity in net income (loss) of affiliated
companies' as stated in the accompanying consolidated statements of income.
(2) Consolidated Financial Position
(Millions of yen, except per share amounts)
Total assets Total shareholders' Equity-assets Shareholders'
equity ratio equity per share
March 31, 2003 278,250 90,406 32.5% 750.35
March 31, 2002 328,091 134,990 41.1% 1,084.43
Note:
Number of shares outstanding
March 31, 2003: 120,484,375 shares
March 31, 2002: 124,479,815 shares
(3) Consolidated Cash Flows
(Millions of yen)
Net cash provided by (used in) Cash and
Operating Investing Financing cash equivalents at
activities activities activities end of year
Year ended March 31, 2003 27,711 (12,242) (16,443) 74,680
Year ended March 31, 2002 11,119 (16,024) 12,613 75,188
(4) Number of Consolidated Subsidiaries and Companies Accounted for by the
Equity Method
Number of consolidated subsidiaries: 28
Number of affiliated companies accounted for by the equity method: 3
(5) Changes in Reporting Entities
Number of consolidated subsidiaries added: 2
Number of consolidated subsidiaries removed: 11
Number of affiliated companies removed: 1
2. Earnings Forecast for the Year Ending March 31, 2004
(Millions of yen)
Net revenues Operating Income before Net income
income income taxes
Year ending March 31, 2004 255,500 27,500 26,700 14,500
Reference:
Estimated net income per share: Y120.35
Cautionary Statement with Respect to Forward-Looking Statements:
Statements made in this document with respect to our current plans, estimates,
strategies and beliefs, including the above forecasts, are forward-looking
statements about our future performance. These statements are based on
managementfs assumptions and beliefs in light of information currently available
to it and, therefore, you should not place undue reliance on them. A number of
important factors could cause actual results to be materially different from and
worse than those discussed in forward-looking statements. Such factors include,
but are not limited to: (i) changes in economic conditions affecting our
operations; (ii) fluctuations in currency exchange rates, particularly with
respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii)
our ability to continue to win acceptance of our products, which are offered in
highly competitive markets characterized by the continuous introduction of new
products, rapid developments in technology and subjective and changing consumer
preferences; (iv) our ability to successfully expand internationally with a
focus on our video game software business, card game business and gaming machine
business; (v) our ability to successfully expand the scope of our business and
broaden our customer base through our exercise entertainment business; (vi)
regulatory developments and changes and our ability to respond and adapt to
those changes; (vii) our expectations with regard to further acquisitions and
the integration of any companies we may acquire; and (viii) the outcome of
contingencies.
Please refer to page 12 of the attached material for information regarding the
assumptions and other related items used in the preparation of these forecasts.
1. Organizational Structure of the Konami Group
The Konami Group is a collection of companies with global operations in the
entertainment industry and is comprised of KONAMI CORPORATION (the 'Company'),
28 consolidated subsidiaries and three equity method affiliates.
The Company, its subsidiaries and affiliated companies are categorized into
business segments according to their operations as stated below.
Business segment categorization is based on the same criteria explained below
under the heading '8. Segment Information (Unaudited) '.
Business Segments Major Companies
Computer & Video Games Domestic The Company (*11, *13, *17, *19, *21, Note 3)
Konami Marketing Japan, Inc. (*2, *3, Note 6)
(*14) (*9) Konami Computer Entertainment Osaka, Inc. (*19, Note 5)
Konami Computer Entertainment Tokyo, Inc.
Konami Computer Entertainment Japan, Inc.
Konami Computer Entertainment Studios, Inc. (*19, Note 5)
Konami Mobile & Online, Inc.
HUDSON SOFT CO., LTD. (*22),
Genki Co., Ltd. (*22)
Overseas Konami of America, Inc. (Note 4), Konami of Europe GmbH
Konami Marketing (Asia) Ltd.
(*4) Konami Software Shanghai, Inc., One other company
Exercise Entertainment Domestic Konami Sports Corporation (*6, *12, *13, *20, Note 7
Konami Sports Life Corporation (*13)
(*5, *13, *14) Two other companies (*20, Note 7)
Toy & Hobby Domestic The Company (*11, *13, *17, *19 *21, Note 3)
Konami Marketing Japan, Inc. (*2, *3, Note 6)
(*5, *14) Konami Music Entertainment, Inc.
Overseas Konami of America, Inc. (Note 4), Konami of Europe GmbH
(*4) Konami Marketing (Asia) Ltd.
Amusement Domestic The Company (*11, *13, *17, *19 *21, Note 3)
Konami Marketing Japan, Inc. (*2, *3, Note 6)
(*13, *14, *16) KPE, Inc. (*8, *21), One other company (*8)
Overseas Konami of America, Inc. (Note 4)
(*4) Konami Marketing Europe Ltd. (*15)
Konami Marketing (Asia) Ltd.
Gaming Domestic The Company (*11, *13, *17, *19 *21, Note 3)
Overseas Konami Gaming, Inc.
(*14, *16) Konami Australia Pty Ltd., One other company
Other Domestic Konami Real Estate, Inc. (*17, *18)
Konami Service, Inc. (Note 6)
Konami School, Inc. (*1, *7, *11)
TAKARA CO., LTD. (*22), One other company
Overseas Two other companies
(*10)
Notes:
1. Companies that have multiple business segments are included in each segment in which they operate.
2. Primary changes in major companies for the year ended March 31, 2003 are as follows:
(*1) Konami Computer Entertainment School, Inc. merged with Roppongi Monitoring Center, Inc. on May 1,
2002 for the purpose of improving the efficiency of their operations and changed its company name
to Konami School, Inc.
(*2) Konami Amusement Operation, Inc. transferred its amusement facility operation business to its new
wholly-owned subsidiary KAO Co., Ltd. on May 11, 2002. Konami Amusement Operation, Inc. then sold
all shares in KAO Co., Ltd. to Amlead Co., Ltd. on May 13, 2002.
(*3) Konami Marketing Japan, Inc. merged with Konami Style.com Japan, Inc. and Konami Amusement
Operation, Inc. to improve the efficiency of their operations on August 1, 2002.
(*4) Konami (Singapore) Pte. Ltd. and Konami Corporation of Korea were dissolved in August 2002 and
September 2002, respectively.
(*5) The Character Products (CP) segment and the Health and Fitness (HF) segment changed their names to
Toy & Hobby (T&H) and Health & Fitness (H&F), respectively, on October 1, 2002.
(*6) Konami Sports Corporation merged with Konami Olympic Sports Club Corporation on October 1, 2002 to
improve the efficiency of their operations.
(*7) The education business of Konami School, Inc., which used to be included in the Computer & Video
Games segment, was transferred to the Other segment as of October 1, 2002 in order to develop
human resources in the whole Konami group.
(*8) Konami Parlor Entertainment, Inc. and Konami Parlor Research, Inc. changed their company names to
KPE, Inc. and KPR, Inc., respectively, on November 11, 2002.
(*9) Konami Computer Entertainment Kobe, Inc. and Konami Computer Entertainment Nagoya, Inc. were
dissolved in December 2002.
(*10) Konami Asia (Singapore) Pte. Ltd. was dissolved in December 2002.
(*11) The Company took over the debugging business of Konami School, Inc. by acquisition following a
corporate split on January 1, 2003.
(*12) Konami Sports Corporation merged with Konami Sports Plaza, Inc. on January 1, 2003 in order to
improve the efficiency of their operations.
(*13) On January 15, 2003, the Company transferred all of its shares of Konami Sports Corporation to
Konami Sports Life Corporation as a step toward changing the Company's corporate structure by
reorganizing into a pure holding company. As a result, the health entertainment business which had
been a part of the Amusement segment was transferred to the Exercise Entertainment segment on
January 16, 2003.
(*14) The Consumer Software (CS) segment, Health & Fitness (H&F) segment, Toy & Hobby (T&H) segment,
Amusement Content (AC) segment and Gaming Content (GC) segment changed their names to Computer &
Video Games, Exercise Entertainment, Toy & Hobby, Amusement and Gaming, respectively on January
16, 2003.
(*15) Konami Amusement of Europe Ltd. changed its company name to Konami Marketing Europe Ltd. on
January 13, 2003.
(*16) On January 27, 2003, the Gaming segment transferred its token-operated game machine business for
the domestic market to the Amusement segment in order to focus on its gaming machine business for
the overseas gaming industry.
(*17) The Company took over the financial service business, such as arrangement of intercompany loans,
of its wholly-owned subsidiary Konami Capital, Inc. by acquisition following a corporate split on
February 1, 2003. Konami Capital, Inc. now concentrates on its real estate management business.
(*18) Konami Capital, Inc. changed its company name to Konami Real Estate, Inc. on February 1, 2003.
(*19) The Company transferred all the shares of Konami Computer Entertainment Studios, Inc. to Konami
Computer Entertainment Osaka, Inc. on March 13, 2003.
(*20) Konami Sports Corporation acquired all the shares of NISSAY ATHLETICS COMPANY on March 24, 2003.
Thereafter, NISSAY ATHLETICS COMPANY changed its name to Konami Athletics Inc.
(*21) The Company transferred its LCD unit business to its wholly-owned subsidiary, KPE, Inc., on March
13, 2003.
(*22) These are equity method affiliates.
3. The Company added Traumer, Inc. to its subsidiaries through acquisition of 77.8% of the issued
shares of Traumer on April 17, 2003. Consequently, the corporate name of Traumer, Inc. was changed
to Konami Traumer, Inc. on the acquisition date.
4. On April 18, 2003, the Company spun off its arcade game sales operations in the U.S. from Konami of
America, Inc. and established Konami Marketing, Inc. which focuses on sales of arcade games in the
U.S.
5. Konami Computer Entertainment Osaka, Inc. merged with Konami Computer Entertainment Studios, Inc. on
May 1, 2003. The surviving company, Konami Computer Entertainment Osaka, Inc. plans to change its
name to Konami Computer Entertainment Studios, Inc. on June 18, 2003.
6. On May 1, 2003, Konami Marketing Japan, Inc. merged with Konami Service, Inc. in order to improve
customer satisfaction in an integrated business structure which includes sales, marketing and
customer services.
7. On May 1, 2003, Konami Sports Corporation merged with Konami Athletics Inc. in order to improve the
efficiency of their operations and also enhance customer convenience.
2. Management Policy
1. Management Policy
Our management policy places primary priority on shareholders and maintaining
healthy relationships with all stakeholders, including shareholders, and to make
a wide range of social contributions as a good corporate citizen. We aim to make
optimum use of the group's management resources by taking into account the three
keywords of our management policy: ''Adaptation to Global Standards'',
''Maintaining Fair Competition'' and ''Pursuit of High Profits''.
Our management policy of putting our primary priority on shareholders is
expressed in two ways. One is to continuously increase and improve shareholder
value = corporate value = market capitalization and the other is to provide
stable dividends as a means to return profits to shareholders. Retained earnings
will be used to heavily invest in potentially profitable business fields to
increase our corporate value and as a source for paying dividends.
In addition to focusing on the importance of maintaining healthy relationships
with shareholders, investors, end-users, suppliers, employees and the community
in general, we will also work to expand social contributions by supporting a
wide range of activities that promote education, sports and culture.
Pursuant to basic management policy, we aim to be an entertainment enterprise
that achieves continuous expansion and the respect of society.
2. Profit Appropriation Policy
We consider the providing of stable cash dividends and increasing and improving
corporate value as being important to return income to shareholders. Retained
earnings will be used to invest in potentially profitable business fields to
strengthen our growth potential and competitiveness.
3. Medium to Long-term Strategies and Company Priorities
Consumers are becoming more and more diversified in their tastes for, and
selective about, ''entertainment'', while fields within the entertainment
industry such as games, toys, movies, music, sports, education, publishing and
communications are increasingly merging and overlapping. In such an environment,
competition among companies has intensified and so we believe that an innovative
and diversified corporate strategy and further reinforcement of the corporate
structure supporting such a strategy are required for a company to maintain its
capacity to continue to grow.
To enhance our brand value, we have developed a new logo as the symbol for a new
image branding initiative that we are promoting under the tagline ''Bikkuri (Be
Creative)'', which indicates our core competence of ''creativity''. Our goal is
to create products that will add more surprise and emotion to consumer's lives.
At the same time, we are committed to increasing our production, marketing and
financial resources.
Strengthening our corporate structure is a constant theme in setting the
groundwork for future growth. We continue to strengthen our corporate structure
in a variety of ways including enhancement of our production, marketing and
financial resources, building a stronger group management system and
establishing a fair and timely disclosure system.
As a special note with respect to the fiscal year ended March 31, 2003, we
realized our goal of listing on the New York Stock Exchange on September 30,
2002. We continue to work toward expanding business operations in the U.S.,
increasing the number of U.S. shareholders, reinforcing our corporate structure
and complying with the strict regulations of the SEC and New York Stock Exchange
in order to become a truly global company. As for human resources development,
we will continue to nurture next generation leadership and enhance management
skills by using our Leadership Development Center, which was established in the
Konami Super Campus in March 2003.
4. Corporate Governance Development
It is necessary for us to develop strong corporate governance in order to
implement and maintain our basic management policy.
The first and most important agenda in our corporate governance development
program was to reform the board of directors. We employed an outside corporate
officer in May 1992 and introduced a corporate officer system in June 1999. In
June 2001, we reduced the size of our board of directors from 15 to nine, four
of whom consist of outside directors. We have endeavored to accelerate the
managerial decision-making process, separate monitoring from implementation,
strengthen the managerial audit system, revitalize the board of directors, and
pursue management transparency.
We are working to establish committees that will take appropriate action in
response to the increasingly complicated environment within which we operate. We
established a Risk Management Committee in April 2000 in order to enhance our
ability to prevent and respond quickly to internal and external risks. We
established a Compliance Committee in September 2001 to reinforce our entire
system for monitoring and encouraging compliance with applicable laws, rules and
regulations. We established a Disclosure Committee in April 2003. The Disclosure
Committee will work on the development of group company reporting procedures
that will facilitate timely and accurate disclosure.
We established a Konami Group Conduct Charter and a Konami Group Code of
Business Conduct and Ethics that require all members of the Konami Group to
monitor and improve compliance and risk management issues, promote compliance
with applicable laws, rules and regulations and minimize risks.
3. Business Performance and Cash Flows
(1) Business Review
Overview
Although the Japanese economy has improved somewhat due to increased exports,
individual consumption has been leveling off. Economic concern remains regarding
the possibility of a downturn due to uncertainty about the future of the U.S.
economy associated with the war in Iraq and the serious decline of domestic
stock prices.
With respect to the entertainment industry in which we operate, sales of
PlayStation 2 grew most significantly among the full line-up of next generation
video game software platforms. Sales of soccer game software were robust due to
the recent soccer boom in Japan. The domestic industry is in a state of
transition evidenced by debate regarding the possible lifting of the ban against
casino gaming and restructuring within the video game software market.
We entered a new stage by transferring our headquarters to Marunouchi, Tokyo in
August 2002 and by listing on the New York Stock Exchange on September 30, 2002.
We also celebrated our 30th anniversary on March 19, 2003.
We expanded globally during the year ended March 31, 2003 with video game
software such as WORLD SOCCER WINNING ELEVEN 6, a home video game sports
software title that reached combined sales of two million copies in Japan and
Europe, video game software with cartoon characters such as Yu-Gi-Oh!, music
games and a variety of other original products. As a result, the total number of
home video games shipped reached 20 million for the second consecutive year.
Also, the explosively popular Yu-Gi-Oh! card game was a hit, especially in the
U.S. The MICROiR series high-technology toys gained market share. Sales of candy
toys, which have attracted attention for their elaborate figurines, expanded.
The amusement arcade game MAH-JONG FIGHT CLUB, which is an e-AMUSMENT product
that allows players to compete via an on-line amusement connection, developed
well. Gaming machines in overseas markets achieved healthy sales. Konami Sports
Corporation, which seeks to improve its customers' quality of life based on the
concept of ''Exertainment'', introduced a next generation fitness machine and
personal trainer program as well as a new sports club membership category all to
improve customer convenience.
In order to better focus our business and management resources, we transferred
our amusement arcade operations, which had been conducted by Konami Amusement
Operation, Inc. to AmLead Co., Ltd. We did so to achieve business portfolio
optimization. Konami Sports Corporation acquired NISSAY ATHLETICS COMPANY with
the goal of expanding our network of fitness clubs. We are engaged in fast-paced
business expansion and creating products and services that meet our customers'
needs.
As a result, consolidated net revenues for the year ended March 31, 2003
amounted to Y253,657 million, which is the highest level recorded since our
founding. However, based on the findings of a U.S. independent appraiser, we
decided to recognize an impairment loss of Y47,599 million because the fair
value of goodwill and other intangible assets in the Exercise Entertainment
segment had declined below carrying value. Consequently, consolidated operating
loss, consolidated net loss before income taxes and consolidated net loss were
Y21,870 million, Y22,096 million and Y28,519 million, respectively.
Since all business segments generally performed favorably, dividends for the
year ended March 31, 2003 were Y54 per share (Y19 as of September 30, 2002 and
Y35 as of March 31, 2003).
Performance by business segment
Summary of net revenues by business segment:
Millions of Yen Year-on-year
Year ended March 31, change
2002 2003 (%)
Computer & Video Games Y 90,129 Y 87,476 (2.9)
Exercise Entertainment 65,650 78,525 19.6
Toy & Hobby 25,601 45,948 79.5
Amusement 37,918 34,305 (9.5)
Gaming 3,063 8,215 168.2
Other 8,897 5,520 (38.0)
Less: Intersegment revenues (5,678) (6,332) -
Consolidated net revenues Y 225,580 Y 253,657 12.4
Note:
In the fourth quarter ended March 31, 2003, the Amusement segment transferred its health entertainment business to
the Exercise Entertainment segment, and the Gaming segment transferred its token-operated game machine business to
the Amusement segment. In accordance with these changes, results for the year ended March 31, 2002 have been
reclassified to conform to the presentation for the year ended March 31, 2003.
The Computer & Video Games segment, taking advantage of the soccer boom in
Japan, marked a new record with combined sales of over 1.8 million copies of
WORLD SOCCER WINNING ELEVEN 6 and WORLD SOCCER WINNING ELEVEN 6: Final Evolution
for the PlayStation 2. The JIKKYO POWERFULPROYAKYU series, our popular baseball
game product, maintained stable sales. JIKKYO POWERFULPROYAKYU 9 for the
PlayStation 2 and the Game Cube sold 570,000 copies. JIKKYO POWERFULPROYAKYU 9
KETTEIBAN for the PlayStation 2 and the Game Cube sold 180,000 copies. As for
our tennis games, THE PRINCE OF TENNIS, a popular character from Shonen Jump (a
Japanese weekly comic book for boys), THE PRINCE OF TENNIS: GENIUS BOYS ACADEMY
and four other titles for the GameBoy Advance and THE PRINCE OF TENNIS: Sweat
and Tears and three other titles for the PlayStation were released and sold over
600,000 copies altogether. A conference called ''Seishun-Gakuen-Teikyu-Sai
2003'' where fans of THE PRINCE OF TENNIS gathered in Ariake Tennis no Mori in
the end of March contributed greatly to its regaining popularity.
In the overseas markets, Pro Evolution Soccer 2 for the PlayStation 2 recorded
one million sales in Europe battling for the best soccer game status in Europe.
As a result of maximized synergies with the TV program and the trading card
game, Yu-Gi-Oh! THE ETERNAL DUELIST SOUL for the GameBoy Advance, Yu-Gi-Oh!
FORBIDDEN MEMORIES for the PlayStation, and Yu-Gi-Oh! Dark Duel Stories for
GameBoy Color, each of which recorded million sales, resulting in the sales for
the Yu-Gi-Oh! series as a whole reached 4.6 million copies.
As a result, consolidated revenues of the Computer & Video Games segment were
Y87,476 million (97.1% of consolidated revenues for the year ended March 31,
2002).
The Exercise Entertainment segment worked to expand its network of fitness clubs
by opening 16 facilities including Oyama (Tokyo), Yachiyodai (Chiba) Moriguchi
(Osaka), Nishi-funabashi (Chiba) and other facilities operated by third parties.
On March 24, 2003, we acquired all of the outstanding shares of the NISSAY
ATHLETICS COMPANY, which became a wholly-owned subsidiary thereby adding five
new directly-managed club facilities. Konami Sports Corporation merged with the
acquired company on May 1, 2003. We also worked to improve customer satisfaction
by moving six existing club facilities to better locations in the same
neighborhood or by acquiring facilities that had been operated by other
companies.
As for product branding activities, we integrated our Freizeit and Sele clubs
into the Eg-zas brand on April 1, 2002, and introduced a new ''Undo-Jyuku'' on
October 1, 2002 to strengthen brand recognition and provide more sophisticated
facility services, aiming to improve the retention rate of current customers. In
a move to improve customer convenience, we introduced new services and product
such as a personal trainer system where an instructor with specialized knowledge
provides individualized lessons for each customer. We also launched the first
official i-mode (internet enabled cellular phone) site in the fitness industry,
which provides various club facility information and health-related information.
We released home fitness products such as MARTIAL BEAT II, which is a popular
martial arts fitness action game that uses video game software and can measure
physical strength, and Aerobics Revolution, which allows players to enjoy
realistic aerobics activity at home.
As a result, consolidated revenues of the Exercise Entertainment segment were
Y78,525 million (119.6% of consolidated revenues for the year ended March 31,
2002).
The Toy & Hobby segment maintained solid card game sales with products such as
the Yu-Gi-Oh! Official Card Game series and THE PRINCE OF TENNIS trading card
game. In particular, the Yu-Gi-Oh! series for the U.S. released during the end
of the previous fiscal year recorded better-than-expected sales growth and
acquired an overwhelming share of the market during the Christmas season. The
Yu-Gi-Oh! card game has been sold in Europe since the end of the previous fiscal
year and is contributing to the global expansion of the product. A new series of
the Yu-Gi-Oh! card game also maintained high levels of sales in Japan. As to
other hobby products, DigiQ Train, Combat DigiQ, and DigiQ Formula, which are
new MICROiR series products, also achieved robust sales. Candy toys, which enjoy
popularity for their high quality figures, especially the SF Movie Selection:
Thunderbirds series and the MIZUSHIMA SHINJI CHARACTERS YAKYUGUNZOU consistently
achieved more than a million sales, which gave them a dominant position in the
market. As a result, consolidated revenues of the Toy & Hobby segment were Y
45,948 million (179.5% of consolidated revenues for the year ended March 31,
2002).
The Amusement segment maintained favorable market acceptance of e-AMUSEMENT
products for amusement arcades such as the MAH-JONG FIGHT CLUB series, which are
video games that allow players to compete directly with players in other arcade
game locations via an on-line amusement connection. We expanded the line-up of
simulation games that can be played by more than one person such as WORLD
COMBAT, a gun shooting game, as well as music simulation games such as pop'n
music, GUITAR FREAKS and drummania. These products maintained strong sales.
Token-operated products that continue to be popular such as GI-WINNING SIRE and
GI-TURFWILD, the latest large-scale token-operated horse racing games in the GI
series which has a realistic ''right there in the midst of it'' feel, FORTUNE
ORB, a large-sized ''penny-falls'' game machine, popular for its entertaining
stage effects, and Oval Arena, new large-scale token-operated bingo game machine
with a player match-up function, also contributed the favorable sales.
The LCD unit business's results declined relative to the previous year because
sales to main customers were affected by the World Cup Soccer tournament. We
plan to introduce differentiated and attractive products in the future. As a
result, consolidated revenues of the Amusement segment were Y34,305 million
(90.5 % of consolidated revenues for the year ended March 31, 2002).
The Gaming segment acquired gaming licenses from 18 states in the U.S. and the
installed base of video slot machines has been increasing in line with a more
diverse line up of products. As a result, sales of our products are improving
steadily in Nevada and the mid-west region of the U.S. We released a new gaming
machine in February 2003 called ReNeA, which creates an innovative experience by
combining stepper reels with a video image. The combination of WILD FIRE, a
standalone progressive game, with existing gaming contents has been well
received in Australia. We have acquired gaming licenses in all Australian
states, and sales in New South Wales, Queensland and Victoria were especially
strong. As a result, consolidated revenues of the Gaming segment were Y 8,215
million (268.2% of consolidated revenues for the year ended March 31, 2002).
Consolidated revenues for the Other segment were Y5,520 million. (62.0% of
consolidated revenues for the year ended March 31, 2002)
Forecast for the year ending March 31, 2004
The Computer & Video Games segment expects to release branded popular sports
titles like JIKKYO POWERFULPROYAKYU, the World Soccer Winning Eleven series and
a more diverse line up of new original products. The segment will further
enhance its competitiveness in the overseas market by working to expand the
Yu-Gi-Oh! series in the U.S. and Europe. We also plan to strengthen the branded
original title SILENT HILL series and soccer games and to release TEENAGE MUTANT
NINJA TURTLES as a new big title based on the cartoon TV program started in
February in 2003. In order to strengthen our product line up, Konami Computer
Entertainment Osaka, Inc. merged with Konami Entertainment Studios, Inc., both
of which are video game software producing subsidiaries on May 1, 2003.
The Exercise Entertainment segment will work to improve customer satisfaction by
providing secure, clean and comfortable fitness club facilities. We also plan to
improve the quality of our sports club services to fully satisfy diversified
member needs by continuing to actively open new facilities and renew existing
facilities. Based on the concept of ''Exertainment'', which seeks to provide
ways to exercise while continuing to have fun, we plan to introduce next
generation fitness machines, expand home fitness products, provide personal
health management information and establish a completely networked environment
for sports clubs and households. By doing so we hope to set the new standard as
to what a fitness club should be.
The Toy & Hobby segment expects to continue to release new Yu-Gi-Oh! card games,
which are gaining successful market acceptance in the U.S. resulting from an
effective media mix promotion program. We also plan to expand the product in
Europe and organize an event, ''Yu-Gi-Oh! World Championship 2003'' that will
attract competitors from around the world with the aim of making it a global
hit. In addition, we plan to expand the value added product line-up of
advanced-technology MICROiR toys and to establish Kids Smile, a new brand of
intellectual education toys that we introduced in April 2003.
The Amusement segment will work to develop variations of hit products and genres
and expand the e-AMUSEMENT product lineup with an aim to provide a more
''enjoyable'' and ''interesting'' experience for players at arcade amusement
centers.
The Gaming segment will work to expand its product range by introducing original
products. We also plan to expand distribution by introducing our products in new
markets and increasing the number of states in the U.S. where we have licenses
to conduct business.
With the ''Pursuit of High Profits'' in mind, each business segment will
endeavor to provide high-quality products and services that target consumer
needs.
Consolidated results for the year ending March 31, 2004 are expected to be as
follows: Y255,500 million of net revenues; Y27,500 million of operating income;
Y26,700 million of income before income taxes, minority interest and equity in
net income of affiliated companies; and Y14,500 million of net income.
We do not disclose interim consolidated earnings forecasts because revenues
fluctuate during the fiscal period resulting from the fact that we operate hit
businesses that rely on the timely creation and introduction of new merchandise.
Therefore, we strive to enhance the quality of our quarterly disclosure.
(2) Cash Flows
Cash flow summary for the years ended March 31, 2002 and 2003:
Millions of Yen
Year ended March 31, Year-on-year
2002 2003 change
Net cash provided by operating activities Y 11,119 Y 27,711 Y 16,592
Net cash used in investing activities (16,024) (12,242) 3,782
Net cash provided by (used in) financing activities 12,613 (16,443) (29,056)
Effect of exchange rate changes 667 466 (201)
on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents 8,375 (508) (8,883)
Cash and cash equivalents at end of year 75,188 74,680 (508)
Cash flows from operating activities:
Net cash provided by operating activities amounted to Y27,711 million for the
year ended March 31, 2003, which is a significant increase from Y11,119 million
during the previous year. This was due primarily to favorable results of the
Computer & Video Games segment and Toy & Hobby segment, and a decrease in trade
notes and accounts receivables of Y4,580 million. The impairment charge of
goodwill and other intangible assets in the Exercise Entertainment segment had
no effect on cash flows.
Cash flows from investing activities:
Net cash used in investing activities amounted to Y12,242 million for the year
ended March 31, 2003 as compared to Y16,024 million in the previous year. This
resulted primarily from capital expenditures of Y15,357 million, which was due
mainly to active investment in property and equipment by the Exercise
Entertainment segment. On the other hand, investments in new subsidiaries and
affiliated companies decreased to Y449 million from Y7,423 million during the
previous year.
Cash flows from financing activities:
Net cash used in financing activities amounted to Y16,443 million for the year
ended March 31, 2003 while net cash of Y12,613 million was provided during the
previous year. This was due primarily to active payment of dividends, repayments
of debts and purchases of treasury stock with Y14,893 million of proceeds from
the issuance of bonds by Konami Sports Corporation. Proceeds from the Company's
issuance of bonds in the previous year were Y44,681 million.
The following table represents certain cash flow indexes for the years ended
March 31, 2002 and 2003.
Year ended March 31,
2002 2003
Equity-assets ratio (%) 41.1 32.5
Equity-assets ratio based on market capitalization (%) 111.9 75.1
Years of debt redemption (years) 5.7 2.7
Interest coverage ratio (times) 14.5 29.5
Equity-assets ratio = Shareholders' equity / Total assets
Equity-assets ratio based on market capitalization = Market capitalization /
Total assets
Years of debt redemption = Interest-bearing debt / Cash flows from operating
activities
Interest coverage ratio = Cash flows from operating activities / Interest paid
Notes:
1. The above indexes are calculated on a consolidated basis with U.S. GAAP
figures.
2. Cash flows from operating activities are equal to net cash provided by
operating activities on the consolidated statements of cash flows.
3. Interest-bearing debts include all the liabilities on the consolidated
balance sheets that incur interest expense.
Cautionary Statement with Respect to Forward-Looking Statements:
Statements made in this document with respect to our current plans, estimates,
strategies and beliefs, including the above forecasts, are forward-looking
statements about our future performance. These statements are based on
managementfs assumptions and beliefs in light of information currently available
to it and, therefore, you should not place undue reliance on them. A number of
important factors could cause actual results to be materially different from and
worse than those discussed in forward-looking statements. Such factors include,
but are not limited to: (i) changes in economic conditions affecting our
operations; (ii) fluctuations in currency exchange rates, particularly with
respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii)
our ability to continue to win acceptance of our products, which are offered in
highly competitive markets characterized by the continuous introduction of new
products, rapid developments in technology and subjective and changing consumer
preferences; (iv) our ability to successfully expand internationally with a
focus on our video game software business, card game business and gaming machine
business; (v) our ability to successfully expand the scope of our business and
broaden our customer base through our exercise entertainment business; (vi)
regulatory developments and changes and our ability to respond and adapt to
those changes; (vii) our expectations with regard to further acquisitions and
the integration of any companies we may acquire; and (viii) the outcome of
contingencies.
4. Consolidated Balance Sheets (Unaudited)
Millions of Yen Thousands of U.S. Dollars
March 31, March 31,
2002 2003 2003
% %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y 75,188 Y 74,680 $ 621,298
Trade notes and accounts receivable, net of
allowance for doubtful accounts of Y636
million and Y976 million ($8,120
thousand) at March 31, 2002 and 2003, respectively 34,275 29,107 242,155
Inventories 15,990 13,359 111,140
Deferred income taxes, net 9,143 12,820 106,656
Prepaid expenses and other current assets 7,459 6,739 56,064
Total current assets 142,055 43.3 136,705 49.1 1,137,313
PROPERTY AND EQUIPMENT, net 43,562 13.3 46,284 16.6 385,058
INVESTMENTS AND OTHER ASSETS:
Investments in marketable securities 204 189 1,572
Investments in affiliates 13,459 12,422 103,345
Identifiable intangible assets 60,169 46,503 386,880
Goodwill 36,825 125 1,040
Lease deposits 24,654 24,489 203,736
Other assets 7,163 11,533 95,948
Total investments and other assets 142,474 43.4 95,261 34.3 792,521
TOTAL ASSETS Y 328,091 100.0 Y 278,250 100.0 $ 2,314,892
(Continued on following page.)
Millions of Yen Thousands of U.S. Dollars
March 31, March 31,
2002 2003 2003
% %
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y 10,948 Y 8,308 $ 69,118
Current portion of long-term debt
and capital lease obligations 4,751 1,815 15,100
Trade notes and accounts payable 20,292 18,684 155,441
Accrued income taxes 13,224 13,788 114,709
Accrued expenses 21,120 18,968 157,804
Deferred revenue 3,866 5,535 46,048
Other current liabilities 5,347 4,676 38,902
Total current liabilities 79,548 24.2 71,774 25.8 597,122
LONG-TERM LIABILITIES:
Long-term debt and capital lease
obligations, less current portion 48,031 63,514 528,403
Accrued pension and severance costs 2,607 2,345 19,509
Deferred income taxes, net 24,169 18,854 156,855
Other long-term liabilities 2,830 2,502 20,815
Total long-term liabilities 77,637 23.7 87,215 31.3 725,582
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARIES 35,916 11.0 28,855 10.4 240,058
COMMITMENTS AND CONTINGENCIES - - -
SHAREHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares;
issued 128,737,566 shares at
March 31, 2002 and 2003 47,399 14.4 47,399 17.0 394,334
Additional paid-in capital 46,736 14.2 46,736 16.8 388,819
Legal reserve 2,163 0.7 2,163 0.8 17,995
Retained earnings 53,149 16.2 18,981 6.8 157,912
Accumulated other comprehensive income 546 0.2 790 0.3 6,572
Total 149,993 45.7 116,069 41.7 965,632
Treasury stock, at cost-
4,257,751 shares and 8,253,191
shares at March 31, 2002 and
2003, respectively (15,003) (4.6) (25,663) (9.2) (213,502)
Total shareholders' equity 134,990 41.1 90,406 32.5 752,130
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY Y 328,091 100.0 Y 278,250 100.0 $ 2,314,892
5. Consolidated Statements of Income (Unaudited)
Millions of Yen Thousands of U.S. Dollars
Year ended March 31, Year ended March 31,
2002 2003 2003
% %
NET REVENUES:
Product sales revenue Y 165,154 Y 178,766 $ 1,487,238
Service revenue 60,426 74,891 623,053
Total net revenues 225,580 100.0 253,657 100.0 2,110,291
COSTS AND EXPENSES:
Costs of products sold 104,192 112,364 934,809
Costs of services rendered 50,459 62,515 520,091
Impairment charge for - 47,599 395,998
goodwill and other
intangible assets
Selling, general and 52,842 53,049 441,340
administrative
Total costs and expenses 207,493 92.0 275,527 108.6 2,292,238
Operating income (loss) 18,087 8.0 (21,870) (8.6) (181,947)
OTHER INCOME (EXPENSES):
Interest income 244 373 3,103
Interest expense (767) (938) (7,804)
Gain on sale of subsidiary 4,655 904 7,521
shares
Other, net 459 (565) (4,700)
Other income (expenses), net 4,591 2.1 (226) (0.1) (1,880)
INCOME (LOSS) BEFORE INCOME 22,678 10.1 (22,096) (8.7) (183,827)
TAXES, MINORITY INTEREST AND
EQUITY IN NET INCOME (LOSS)
OF AFFILIATED COMPANIES
INCOME TAXES:
Current 17,276 14,912 166,023
Deferred (5,609) (8,726) (114,559)
Total 11,667 5.2 6,186 2.4 51,464
INCOME (LOSS) BEFORE 11,011 4.9 (28,282) (11.1) (235,291)
MINORITY INTEREST AND
EQUITY IN NET INCOME (LOSS)
OF AFFILIATED COMPANIES
MINORITY INTEREST IN 364 0.1 (1,051) (0.4) (8,744)
INCOME (LOSS) OF
CONSOLIDATED SUBSIDIARIES
EQUITY IN NET INCOME (LOSS) 755 0.3 (1,288) (0.5) (10,716)
OF AFFILIATED COMPANIES
NET INCOME (LOSS) Y 11,402 5.1 Y (28,519) (11.2) $ (237,263)
PER SHARE DATA:
Yen U.S. Dollars
Year ended March 31, Year ended March 31,
2002 2003 2003
Basic and diluted net income (loss) per share Y 89.32 Y (234.58) $ (1.95)
Weighted-average common shares outstanding 127,647,120 121,572,154
Note: Net income (loss) per share was prepared in accordance with Statement of
Financial Accounting Standard (SFAS) No. 128 'Earnings per Share'. Konami
had no dilutive securities outstanding at March 31, 2002 and 2003, and
therefore there is no difference between basic and diluted EPS.
6. Consolidated Statements of Shareholders' Equity (Unaudited)
Millions of Yen
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Stock, Shareholders'
Capital Reserve Comprehensive Equity
Income at Cost
Balance at March 31, Y 47,399 Y 46,736 Y 1,770 Y 49,220 Y 26 - Y 145,151
2001
Net income 11,402 11,402
Cash dividends, Y54.0 (7,080) (7,080)
per share
Net unrealized losses (189) (189)
on available-for-sale
securities
Foreign currency 709 709
translation
adjustments
Reissuance of Y 3 3
treasury stock
Repurchase of (15,006) (15,006)
treasury stock
Transfer from 393 (393) -
retained
Earnings
Balance at March 31, Y 47,399 Y 46,736 Y 2,163 Y 53,149 Y 546 Y(15,003) Y 134,990
2002
Net loss (28,519) (28,519)
Cash dividends, Y46.0 (5,649) (5,649)
per share
Net unrealized losses 159 159
on available-for-sale
securities
Foreign currency 85 85
translation
adjustments
Repurchase of (10,660) (10,660)
treasury stock
Balance at March 31, Y 47,399 Y 46,736 Y 2,163 Y 18,981 Y 790 Y(25,663) Y 90,406
2003
Thousands of U.S. Dollars
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Stock, Shareholders'
Capital Reserve Comprehensive Equity
Income at Cost
Balance at March 31, $394,334 $ 388,819 $ 17,995 $ 442,171 $ 4,543 $(124,817) $ 1,123,045
2002
Net loss (237,263) (237,263)
Cash dividends, (46,996) (46,996)
$0.38 per
share
Net unrealized 1,322 1,322
losses on
available-for-sale
securities
Foreign currency 707 707
translation
adjustments
Repurchase of (88,685) (88,685)
treasury stock
Balance at March 31, $394,334 $ 388,819 $ 17,995 $ 157,912 $ 6,572 $(213,502) $ 752,130
2003
7. Consolidated Statements of Cash Flows (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
Year ended March 31, Year ended
March 31,
2002 2003 2003
Cash flows from operating activities:
Net income (loss) Y 11,402 Y (28,519) $ (237,263)
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 15,460 11,979 99,659
Impairment charge for goodwill and other
intangible assets - 47,599 395,998
Provision for doubtful receivables 4,189 429 3,569
Loss on sale or disposal of property and
equipment, net 924 2,344 19,501
Gain on sale of subsidiary shares (4,655) (904) (7,521)
Equity in net (income) loss of affiliated
companies (755) 1,288 10,716
Minority interest 364 (1,051) (8,744)
Deferred income taxes (5,609) (11,326) (94,226)
Change in assets and liabilities:
Decrease (increase) in trade notes and
accounts receivable (3,930) 4,580 38,103
Decrease (increase) in inventories (1,594) 2,556 21,264
Decrease in trade notes and accounts payable (5,934) (1,521) (12,654)
Increase (decrease) in accrued income taxes (1,722) 394 3,278
Increase (decrease) in accrued expenses 2,305 (2,271) (18,893)
Increase in deferred revenue 805 1,669 13,885
Other, net (131) 465 3,869
Net cash provided by operating activities 11,119 27,711 230,541
Cash flows from investing activities:
Purchases of investments in affiliates (8,115) - -
Purchases of investments in subsidiaries - (315) (2,621)
Proceeds from sales of investments in
subsidiaries 1,797 2,081 17,313
Capital expenditures (8,095) (15,357) (127,762)
Proceeds from sales of property and equipment 444 2,234 18,586
Acquisition of new subsidiaries, net of cash
acquired 692 (449) (3,735)
Decrease in time deposits, net 90 516 4,293
Increase in lease deposits, net (1,877) (306) (2,546)
Other, net (960) (646) (5,375)
Net cash used in investing activities (16,024) (12,242) (101,847)
Cash flows from financing activities:
Net decrease in short-term borrowings (1,108) (2,448) (20,366)
Proceeds from long-term debt 45,230 15,402 128.137
Repayments of long-term debt (13,172) (2,765) (23,004)
Principal payments under capital lease
obligations (2,407) (3,439) (28,611)
Net proceeds from issuance of common stock
by a subsidiary 7,035 - -
Dividends paid (7,652) (6,324) (52,612)
Purchases of treasury stock by parent
company (15,006) (10,660) (88,685)
Purchases of treasury stock by subsidiaries (194) (4,516) (37,571)
Other, net (113) (1,693) (14,085)
Net cash provided by (used in) financing
activities 12,613 (16,443) (136,797)
Effect of exchange rate changes on cash and
cash equivalents 667 466 3,877
Net increase (decrease) in cash and cash
equivalents 8,375 (508) (4,226)
Cash and cash equivalents, beginning of year 66,813 75,188 625,524
Cash and cash equivalents, end of year Y 75,188 Y 74,680 $ 621,298
8. Segment Information (Unaudited)
(1) Operations in Different Industries
Year ended Computer & Exercise
March 31, Video Games Entertain- Toy &
2002 ment Hobby Amusement Gaming Other Total Corporate Consolidated
(Millions of Yen)
Net revenue:
Customers Y 88,762 Y 65,619 Y 25,213 Y 36,649 Y 3,063 Y 6,274 Y 225,580 - Y 225,580
Intersegment 1,367 31 388 1,269 - 2,623 5,678 Y (5,678) -
Total 90,129 65,650 25,601 37,918 3,063 8,897 231,258 (5,678) 225,580
Operating 71,777 70,273 18,400 29,318 5,789 9,241 204,798 2,695 207,493
expenses
Operating Y 18,352 Y (4,623) Y 7,201 Y 8,600 Y (2,726) Y (344) Y 26,460 Y (8,373) Y 18,087
income
(loss)
Year ended Computer & Exercise
March 31, Video Games Entertain- Toy &
2003 ment Hobby Amusement Gaming Other Total Corporate Consolidated
(Millions of Yen)
Net revenue:
Customers Y 85,891 Y 78,437 Y 45,887 Y 33,105 Y 8,215 Y 2,122 Y 253,657 - Y 253,657
Intersegment 1,585 88 61 1,200 - 3,398 6,332 Y (6,332) -
Total 87,476 78,525 45,948 34,305 8,215 5,520 259,989 Y (6,332) 253,657
Operating 73,489 127,937 29,319 27,035 8,384 6,330 272,494 3,033 275,527
expenses
Operating Y 13,987 Y (49,412) Y 16,629 Y 7,270 Y (169) Y (810) Y (12,505) Y (9,365) Y (21,870)
income
(loss)
Year ended Computer & Exercise
March 31, Video Games Entertain- Toy &
2003 ment Hobby Amusement Gaming Other Total Corporate Consolidated
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 714,567 $ 652,554 $ 381,755 $ 275,417 $ 68,344 $ 17,654 $ 2,110,291 - $ 2,110,291
Intersegment 13,186 732 508 9,983 - 28,270 52,679 $ (52,679) -
Total 727,753 653,286 382,263 285,400 68,344 45,924 2,162,970 (52,679) 2,110,291
Operating 611,389 1,064,368 243,918 224,917 69,750 52,663 2,267,005 25,233 2,292,238
expenses
Operating $ 116,364 $(411,082) $138,345 $ 60,483 $ (1,406) $ (6,739) $ (104,035) $ (77,912)$ (181,947)
income
(loss)
Notes:
1. Primary businesses of each segment are as follows:
Computer & Video Games: Production and sale of home-use video game software
Exercise Entertainment: Operation of health and fitness clubs
Toy & Hobby: Production and sale of character related products
Amusement: Manufacture and sale of amusement arcade games, related components
and token-operated games for domestic market
Gaming: Manufacture and sale of gaming machines for overseas market
Other: Real estate management services provided primarily to our subsidiaries
2. In the third quarter ended December 31, 2002, the Health and Fitness (HF) segment and
Character Products (CP) segment changed their names to Health & Fitness (H&F) and Toy & Hobby (T
&H), respectively.
3. In the fourth quarter ended March 31, 2003, the Consumer Software (CS) segment, Health &
Fitness (H&F) segment, Toy & Hobby (T&H) segment, Amusement Content (AC) segment and Gaming
Content (GC) segment changed their names to Computer & Video Games, Exercise Entertainment, Toy
& Hobby, Amusement and Gaming, respectively.
4. In the fourth quarter ended March 31, 2003, the Amusement segment transferred its health
entertainment business to the Exercise Entertainment segment, and the Gaming segment transferred
its token-operated game machine business to the Amusement segment. In accordance with these
changes, results for the year ended March 31, 2002 have been reclassified to conform to the
presentation for the year ended March 31, 2003.
5. Y47,599 million ($395,998 thousand) of impairment charge for goodwill and other intangible
assets was included in the operating expenses of the Exercise Entertainment segment for the year
ended March 31, 2003.
6. Intersegment revenues primarily consist of sub-licensing of intellectual property rights from
Computer & Video Games and Toy & Hobby to Amusement and Gaming, sales of hardware and components
from Amusement and Gaming to Computer & Video Games and Exercise Entertainment, and
administrative services provided by shared-service subsidiaries included in 'Other'.
'Eliminations and Corporate' primarily consists of eliminations of intercompany profits on
inventories and expenses for corporate headquarters.
(2) Operations in Geographic Areas
Year ended Asia
March 31, 2002 Japan Americas Europe /Oceania Total Eliminations Consolidated
(Millions of Yen)
Net revenue:
Customers Y 177,618 Y 26,002 Y 19,320 Y 2,640 Y 225,580 - Y 225,580
Intersegment 31,446 2,860 6 199 34,511 Y (34,511) -
Total 209,064 28,862 19,326 2,839 260,091 (34,511) 225,580
Operating expenses 185,089 30,438 14,944 2,695 233,166 (25,673) 207,493
Operating income
(loss) Y 23,975 (1,576) 4,382 144 26,925 (8,838) 18,087
Year ended Asia
March 31, 2003 Japan Americas Europe /Oceania Total Eliminations Consolidated
(Millions of Yen)
Net revenue:
Customers Y 182,345 Y 47,729 Y 16,297 Y 7,286 Y 253,657 - Y 253,657
Intersegment 50,670 805 27 506 52,008 Y (52,008) -
Total 233,015 48,534 16,324 7,792 305,665 (52,008) 253,657
Operating expenses 258,551 47,112 14,917 6,236 326,816 (51,289) 275,527
Operating income
(loss) Y (25,536) Y 1,422 Y 1,407 Y 1,556 Y (21,151) Y (719) Y (21,870)
Year ended Asia
March 31, 2003 Japan Americas Europe /Oceania Total Eliminations Consolidated
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 1,517,013 $ 397,080 $ 135,582 $ 60,616 $ 2,110,291 - $ 2,110,291
Intersegment 421,548 6,697 225 4,209 432,679 $ (432,679) -
Total 1,938,561 403,777 135,807 64,825 2,542,970 (432,679) 2,110,291
Operating expenses 2,151,007 391,947 124,101 51,880 2,718,935 (426,697) 2,292,238
Operating income
(loss) $ (212,446) $ 11,830 $ 11,706 $ 12,945 $ (175,965) $ (5,982) $ (181,947)
Notes: 1. For the purpose of presenting its operations in geographic areas above, Konami attributes revenues
from external customers to individual countries in each area based on where products are sold and
services are provided.
2. Y47,599 million ($395,998 thousand) of impairment charge for goodwill and other intangible assets was
included in the operating expenses of the Japan segment for the year ended March 31, 2003.
Notes (Unaudited):
1. The U.S. dollar amounts included herein represent a translation using
the mid price for telegraphic transfer of U.S. dollars for yen quoted by The
Bank of Tokyo-Mitsubishi, Ltd. as of March 31, 2003 of Y120.20 to $1 and are
included solely for the convenience of the reader. The translation should not be
construed as a representation that the yen amounts have been, could have been,
or could in the future be converted into U.S. dollars at the above or any other
rate.
2. The consolidated financial statements presented herein were prepared in
accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP).
3. Comprehensive income for the years ended March 31, 2002 and 2003
consisted of the following:
Millions of Yen Thousands of
U.S. Dollars
Year ended
Year ended March 31, March 31,
2002 2003 2003
Net income (loss) Y 11,402 Y (28,519) $ (237,263)
Other comprehensive income:
Foreign currency translation adjustments 709 85 707
Net unrealized gains (losses)
on available-for-sale securities (189) 159 1,323
520 244 2,030
Comprehensive income (loss) Y 11,922 Y (28,275) $ (235,233)
4. Adoption of New Accounting Standards
(1) Accounting for business combinations and goodwill and other intangible
assets:
In June 2001, the Financial Accounting Standards Board ('FASB') issued Statement
of Financial Accounting Standards ('SFAS') No. 141, 'Business Combinations,'
which supersedes Accounting Principles Board Opinion ('APB') No. 16, 'Business
Combinations'. SFAS No. 141 requires all business combinations initiated after
June 30, 2001 to be accounted for under the purchase method of accounting. In
addition, SFAS No. 141 establishes criteria for the recognition of intangible
assets separately from goodwill. Konami Corporation and its subsidiaries
(collectively 'Konami') adopted SFAS No. 141 on June 30, 2001 and the adoption
did not have a material effect on Konami's results of operations, financial
position or cash flows.
In June 2001, the FASB issued SFAS No. 142, 'Goodwill and Other
Intangible Assets'. Under SFAS No. 142, unamortized goodwill and certain other
intangible assets are no longer subject to amortization over their useful lives,
but are subject at least annually to assessments for impairment based on fair
value. Goodwill and intangible assets acquired after June 30, 2001 are subject
immediately to the non-amortization and amortization provisions of SFAS No. 142.
Goodwill and other intangible assets acquired prior to June 30, 2001, were not
subject to the non-amortization and amortization provisions until SFAS No. 142
was fully adopted by Konami on April 1, 2002.
Upon the adoption of SFAS No. 142 effective April 1, 2002, Konami completed its
transitional impairment test for goodwill and other intangible assets based on
their fair value. As a result, no impairment charge was recorded for any of the
reporting units as of the April 1, 2002 measurement date.
During the fourth quarter ended March 31, 2003, Konami performed its annual
impairment test for goodwill and other intangible assets and recorded a non-cash
charge of Y47,599 million ($395,998 thousand) as a component of operating loss
in the accompanying consolidated statement of income for the year ended March
31, 2003. In the impairment test, Konami engaged a U.S. independent appraiser to
determine the fair value of its certain reporting unit to which goodwill was
allocated. Based on the appraiserfs findings, it was determined that the fair
value of the Exercise Entertainment segment which included goodwill and
indefinite-lived intangible assets was lower than the carrying value. As a
result of the subsequent reassessment of fair values of goodwill and other
intangible assets which were allocated to the Exercise Entertainment segment, an
impairment loss of Y36,717 million ($305,466 thousand) and Y10,882 million
($90,532 thousand) was recognized for goodwill and trademarks, respectively, as
a component of operating loss of the business segment for the year ended March
31, 2003. The impaired goodwill and trademarks all related to Konami Sports
Corporation ('Konami Sports'), which is a subsidiary in the Exercise
Entertainment segment and operates sports club facilities in Japan.
The following table represents the impact of SFAS No. 142 on net income and net
income per share previously reported for the year ended March 31, 2002, had the
statement been in effect on April 1, 2001:
Millions of Yen
Year ended March 31,
2002
Reported net income Y 11,402
Add back:
Goodwill amortization 1,853
Intangible assets amortization 452
Goodwill amortization
related to equity method affiliates 181
Intangible assets amortization
related to equity method affiliates 9
Adjusted net income Y 13,897
Yen
Year ended March 31,
2002
Per share data:
Reported net income per share, basic and diluted Y 89.32
Add back:
Goodwill amortization 14.52
Intangible assets amortization 3.54
Goodwill amortization
related to equity method affiliates 1.42
Intangible assets amortization
related to equity method affiliates 0.07
Adjusted net income per share, basic and diluted Y 108.87
(2) Impairment or Disposal of Long-Lived Assets:
In August 2001, the FASB issued SFAS No. 144, 'Accounting for the Impairment or
Disposal of Long-Lived Assets'. SFAS No. 144 supersedes SFAS No. 121, but
retains SFAS No. 121's fundamental provisions for (a) recognition and
measurement of impairment of long-lived assets held and used and (b)
measurements of long-lived assets disposed of by sale. SFAS No. 144 also
supersedes APB No. 30 'Reporting the Results of Operation-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions' for segments of a business to be
disposed of but retains APB No. 30's requirement to report discontinued
operations separately from continuing operations. SFAS 144 also extends
reporting of discontinued operations to a part of a company that either has been
disposed of or is classified as held for sale. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years. Konami adopted SFAS No. 144 on April 1, 2002 and the adoption did
not have a material effect on Konami's results of operations, financial position
or cash flows.
5. Investments in Affiliates
Considering the flagging economy and stock market in Japan during the year ended
March 31, 2003, Konami reviewed the values of its equity method investments in
order to determine if there was any other-than-temporary decline in investment
values. In performing the assessment, Konami utilized cash flow projections,
market capitalization and if applicable, independent valuations.
As a result of such assessment, Konami determined that the decline in value of
investment in Hudson Soft Co., Ltd., a producer of video game software, was
other than temporary and recorded a net-of-tax impairment charge of Y2,438
million ($20,283 thousand) for the year ended March 31, 2003. The impairment
charge is included in equity in net loss of affiliated companies in the
accompanying consolidated statement of income.
6. Goodwill
The changes in the carrying amount of goodwill by operating segment for the
years ended March 31, 2002 and 2003 are as follows:
Millions of Yen
Exercise
Entertainment
Gaming Total
Balance at April 1, 2001 Y 36,913 - Y 36,913
Additional acquisitions during year 1,647 Y 125 1,772
Amortization during year (1,860) - (1,860)
Balance at March 31, 2002 Y 36,700 Y 125 Y 36,825
Additional acquisitions during year 389 - 389
Effect of a merger between acquired (168) - (168)
entities
Post-acquisition adjustment (204) - (204)
Impairment charge (36,717) - (36,717)
Balance at March 31, 2003 Y - Y 125 Y 125
Thousands of U.S. Dollars
Exercise
Entertainment
Gaming Total
Balance at March 31, 2002 $ 305,324 $ 1,040 $ 306,364
Additional acquisitions during year 3,236 - 3,236
Effect of a merger between acquired (1,397) - (1,397)
entities
Post-acquisition adjustment (1,697) - (1,697)
Impairment charge (305,466) - (305,466)
Balance at March 31, 2003 $ - $ 1,040 $ 1,040
7. Identifiable Intangible Assets
Identifiable intangible assets at March 31, 2002 and 2003 consisted of the
following:
Millions of Yen Thousands of
U.S. Dollars
March 31, March 31,
Identifiable intangible assets subject to amortization: 2002 2003 2003
Membership lists Y 5,915 Y 5,915 $ 49,210
Existing technology 800 721 5,998
Customer relationships 93 84 699
Total 6,808 6,720 55,907
Less-Accumulated amortization (3,177) (5,878) (48,902)
Net amortized identifiable intangible assets 3,631 842 7,005
Identifiable intangible assets with an indefinite life:
Trademarks 49,682 38,800 322,795
Franchise contracts 6,601 6,601 54,917
Gaming licenses 255 260 2,163
Total unamortized identifiable intangible assets 56,538 45,661 379,875
Total identifiable intangible assets Y 60,169 Y 46,503 $ 386,880
This information is provided by RNS
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